Michigan Increases State Income Tax

Detroit--The Michigan legislature last week approved a temporary
22-percent increase in the state's income tax, ending the immediate
threat of deep cuts in state aid to public schools and colleges.

Spurred by pressure from Gov. William Milliken, lawmakers passed a
six-month tax boost that is expected to yield $300 million for the
financially depressed state.

The action should stave off budget cutbacks that would have crippled
the operation of public schools and higher education and drastically
curtailed other state services. Governor Milliken had warned that
rejection of the tax hike would force him to cut nearly $200 million
from the current year's appropriation for elementary, secondary, and
higher education.

"We're quite pleased that the state plans to live up to its
obligations," said Arthur Jefferson, superintendent of the 207,000-
student Detroit school district, which would have lost $5 million if
the tax-increase measure had failed. "We would have been in serious
trouble had more cuts been ordered."

Despite the income-tax hike, Michigan's public schools may still be
in trouble later this year. Only hours after the tax increase was
passed by the legislature, Michigan's credit rating was lowered by
Moody's Inves-tors Service, a Wall Street credit-rating firm.

Of the 42 states the firm rates, Michigan now holds the lowest
rating, and is the only one in the "Baa 1" category.

The downgrading of credit could make it impossible for the state to
borrow $500 million in September, after the temporary tax increase
expires, to make aid payments to schools, colleges, and
universities.

State officials planned to fly to New York last weekend to appeal
Moody's decision, which was termed "devastating" by the state budget
director, Gerald Miller.

The income-tax increase also may not avert the threatened delay in
state aid to school districts in June. Mr. Miller said increased
revenues from the tax hike will not be collected until July, forcing
the state to hold back $184 million in next month's scheduled state-aid
payments to schools.

"The June delay is going to be troublesome," Mr. Miller said. "Even
if we make a partial aid payment by the end of June, it may be very
small."

Officials of several Michigan school districts--including Detroit,
the largest--have said a delay in June aid payments could force them to
miss payroll obligations.

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